With life insurance being an integral part of an individual’s financial planning exercise, a lot of focus has been given to life insurance products such as term insurance plans (also referred to as protection plans). This article will decode this insurance plan that’s garnering a lot of attention.
To begin with, insurance products fall under two broad categories — pure risk cover and savings, and risk cover. But the purpose, nature and benefits of each of the products under each of these categories are significantly different.
Protection plans as risk covers, only
A protection plan would typically fall under the pure risk cover category as the product is made up of only the protection element, and no maturity benefit is associated with the policy. This policy will only make a payment at the occurrence of a precise event i.e. death. While this might suggest that a large proportion of policyholders taking these policies never receive a payment as they outlive the policy term, they and their families are provided with valuable financial protection in the unfortunate event of a claim occurring.
Protection plans are cost-effective
With a protection plan, a mere sum of Rs 2508 annually (exclusive of service tax and educational cess) could help provide a financial cushion of up to Rs 10,00,000 at the event of death of the policyholder (example based on a male policyholder aged 25 years with a 25 years term). In fact, buying term insurance plans online can be even more cost-effective.
The perfect insurance plan for all
Term plans are insurance products in their purest form. These plans are designed and priced so that the policyholders, as a group, are effectively pooling their premiums in order to pay a benefit for a relatively infrequent, but significant event that might occur. This means that for each policyholder the cost of providing the cover is relatively modest in comparison to the benefit that would be provided if that event occurred. With no savings element attached to it, the life insurer does not incur any expense in terms of managing the funds.
Suitable for single bread earners
A term plan is ideally suited for individuals who are the single bread earner of the family with high financial liabilities. Usually, low income, high financial liabilities, dependent spouse and children, and good insurable health are the factors that trigger the choice to get a term insurance. As always, the fundamental principle remains the same. It’s advised to start at a younger age as premiums will be low. Also, when the insured is young, he/she can avail of longer term coverage such as 30 years.
Protects dependents from short-term liabilities
Term plan is ideal for an individual to protect dependents from any short-term liability such as a house loan, children’s education in case of death. The ideal time to buy term insurance is when an individual has debts that are expected to end after a specific period of time. Similarly, term plans can be used as a cover against car loans, short term loans, etc.
Choosing to purchase a life insurance policy to protect one’s financial dreams and aspirations is a wise decision. It is important that the insurance is purchased according to one’s financial needs.
Mr. Tripathy joined HDFC Life in 2004 and has been responsible for Marketing Strategy, Brand Planning, Advertising, Communication & Media, Customer Insights, New Product Development, Product Life Cycle Management, Online and Digital Strategy, E-Commerce, Customer Analytics, & Corporate communication. He started his career with GCMMF Ltd. in 1992. Since then he has worked with various reputed organizations like Frito-Lay (PepsiCo), Mattel and Reliance Infocomm before moving on to his current role at HDFC Life.View Complete Profile
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